One characteristic of this new age is that oil has developed a split personality -- as a physical commodity but also now as a financial asset. Three other defining characteristics of this new age are the globalization of the demand for oil, a vast shift from even a decade ago; the rise of climate change as a political factor shaping decisions on how we will use oil, and how much of it, in the future; and the drive for new technologies that could dramatically affect oil along with the rest of the energy portfolio.
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That frenetic daily trading has helped turn oil into something new -- not only a physical commodity critical to the security and economic viability of nations but also a financial asset, part of that great instantaneous exchange of stocks, bonds, currencies, and everything else that makes up the world's financial portfolio. Today, the daily trade in those "paper barrels" -- crude oil futures -- is more than 10 times the world's daily consumption of physical barrels of oil. Add in the trades that take place on other exchanges or outside them entirely, and the ratio may be as much as 30 times greater.
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What is decisively new is the globalization of demand. . . For decades, most of the market -- and the markets that mattered the most -- were in North America, Western Europe, and Japan. That's also where the growth was. At the time of the first Gulf War in 1991, China was still an oil exporter.
But now, the growth is in China, India, other emerging markets, and the Middle East. Between 2000 and 2007, the world's daily oil demand increased by 9.4 million barrels. Almost 85 percent of that growth was in emerging markets.